ISLAMABAD: The government has decided to bail out the energy sector, suffering from a massive circular debt, by floating paper guarantees worth Rs24 billion, it has been learnt.

Informed sources told Dawn that the finance ministry had agreed to inject Rs24 billion into the sector in an effort to reduce its debt burden.

The funds would first be injected into Pepco, followed by other concerns down the supply chain.

‘Pepco will pay to the producers of electricity, who will keep their cuts and then pay money to suppliers of furnace oil. At the end of the chain are oil and gas producers,’ said a senior finance ministry official.

Sources said the state guarantees were expected to be launched early next week, and the whole process of payments down the supply chain would be completed within the week.

The ministry estimates that the total accumulated impact of injection of funds in this manner would be Rs79 billion in terms of debt reduction.

The main beneficiary of the exercise would be the state-owned oil marketing company --- the Pakistan State Oil --- which had recently sent an SOS to the government that it might default on its LCs due to liquidity problem.

‘The government plans to inject some cash into the system in the first quarter of the next fiscal to improve the financial health of the power sector and the PSO,’ the official said, adding that various measures, including reduction of subsidies on electricity from July, were likely to provide much-needed liquidity.